Military Contract Bonuses: Government Claw Back Edition

I’ve got a lot of respect for the military. They endure things that the average person could not cope with. This is especially true during a wartime situation like the United States has been faced with since 2001. We send our men and women to serve all across the globe. Some make it back and some don’t – it’s a sad, but true, fact. However, to compensate our soldiers, we pay them in outstanding fringe benefits like education, pensions, and healthcare.

Sometimes during wartime, when ranks run thin, we even pay them with contract bonuses. The same type of contract bonuses you see athletes or corporate executives get to entice them into signing contracts. Generally, so long as the term of the contact was honored – and there was no malfeasance by either party – they are irrevocable and free to enjoy by the signing party. Last year, Peggy Johnson, then an executive with Qualcomm, received a $7.8Million bonusto sign with Microsoft. Could you imagine the outrage if, 10 years from now, Microsoft claws back that bonus saying she was ineligible for the bonus because the Board of Trustees didn’t vote on it?

Strangely enough though that’s exactly the case that’s happening to nearly 9,700 troops associated with the California Guard. The L.A. Times reports that the soldier’s bonuses are being clawed back – and I’m pretty peeved about it.

Contract Bonuses for Everyone!

The issue at hand was reported by the Pentagon. They acknowledged that every state has signing bonuses that were doled out to ineligible parties. However, the difference in the California Guard case is that the effect was far more reaching. Bonuses were given out to anyone willing to sign on the dotted line. A troubling issue for the Pentagon since the average bonus was $15,000 and the California Guard is the largest of all the states. The discrepancy could be close to the tune of about $145million!

That sounds pretty bad. And it is. It’s no small sum of money. However, the bonuses were paid out 10 years ago. Most of the soldiers served multiple tours in Iraq and Afghanistan due to their re-

You Want my Whaaaat!?

enlistment. Let me reiterate the issue here. The Pentagon is telling veterans who were stationed in an active war theater to pay back bonuses that were promised to them as a result of them re-enlisting.

The Pentagon has said that the bonuses were only supposed to go to people that were signing up for high demand positions in intelligence or civil affairs; or to NCO’s ready to deploy in Iraq or Afghanistan. Not just every soldier signing up willy-nilly to serve! Thus, once found through the audit, the Pentagon has ordered all personnel to remand their bonuses from 10 years ago or face wage garnishment and interest penalties. Let’s forget the irony that this audit was likely spurred because the Pentagon is scrambling to get their books in order after the Inspector General found that they had accounting errors of $6.5 trillion for 2015.

Contract Bonuses Should Be Honored

The reason this story has me so peeved is because these soldiers relied on those bonuses when deciding whether or not to enlist. They put their life on the line BECAUSE they felt that combat pay, plus the signing bonus, was worth the risk. It’s impossible to know how many of these veterans would have still re-enlisted had they not been offered a bonus. Frankly though, it’s irrelevant. The core fact of the matter is that it isn’t the soldiers job to know whether or not he is eligible for the bonus – it’s the responsibility of the manager in charge of the program. That’s an oversight issue for the administration, not a reason to hold soldiers liable.

These soldiers signed the re-enlistment in reliance of those signing bonuses. To me, that’s cut and dry. If the military told me I was eligible for $15,000 to sign my life away for six years, I might be tempted to do it. It’s a very different question without that $15,000 though. The L.A. Times reports that some veterans were forced to cash out equity in their home to pay for the claw back. Punishing the veteran for governmental failure. We’re talking about time-tested contractual obligations. These veterans signed a contract promising them a bonus for years of their life. They served their obligation in the contract. Thusly, they should be entitled to all benefits of their contract. Punishing those who serve for such a reason is despicable; the government may get the money back, but those veterans will never get that time of their life back.

Conclusion

It is worth noting that some of the service men and women may not be 100% innocent. Retired Master Sgt. Toni Jaffe was sentenced to 30 months in federal prison, and a $15 million fine due to submitting claims for bonuses for soldiers she knew were ineligible. The FBI report notes that it was paid out to friends, family and other colleagues. If that’s the case, then I do rescind my opinion; however, given the breadth and quantity of the articles, I don’t feel like that’s the case.

I want everyone to consider something. If these veterans are all forced to pay this back, then we will live in a country where 9,700 different veterans will be forced to pay $15,000 for the governments lack of internal controls and misrepresentation. Yet Carri Tolstedt, retired executive for Wells Fargo, was only obligated to give back $19 million of a $125 million bonus after leading one of the largest cases of consumer fraud ever. Just let that sink in.

Readers, how do you feel about this claw back of “ineligible bonuses” to our service men and women? Do you believe the government should be bound by their own ineptitude? Let me know in the comments below! Also, be sure to check out my Cash Flow Celt Facebook page. If you live in Central Florida, also be sure to check out my alter-ego, The Real Estate Celt! I’m licensed to help you buy and sell real estate!

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I'm just a local business and finance nerd looking to help people get educated about small business, marketing, and personal finance! I write about anything and everything that I can tie into those themes. I'm also Central Florida's only Kilted Realtor, so I write about Real Estate too! Check out my About Me page to see the origins of Cash Flow Celt.

2 Responses

If there is one thing I learned in my time in the military, Uncle Sam gets his. If they underpaid, it would take months to get the money, if they overpay, the second they find out, they WILL get it back.

Most military people focus on the service and “oh yeah, I get a paycheck.” I always approached it with a more mercenary mindset. It’s still an honor, but if you don’t pay me, I’m going somewhere else.

I personally took advantage of the signing bonus. I acted in good faith because I believed the career planner would have had told me if I didn’t qualify, he’s the Subject Matter Expert, right?

Unfortunately knowing military personnel as I do, theres going to be two military types here: the fraudsters and the ignorant. There are going to be a lot in both camp, but the government should make the effort to determine which is which. Knowing the military, they will simply demand it all back from everyone; that’s how they roll.

The good news (which hasn’t hit the main stream) is DFAS (the accounting department responsible for collections) is actually pretty benevolent with the repayment terms.

I took a contract bonus after 6 years for another six in return for $15,000. I would have left if not for the money. Three years later I went to Afghanistan on my third combat deployment. I spent ten years in the same unit and loved my fellow marines like brothers. I didn’t know or care about the rest of the Corps. Thus, when a new 1st Sergeant tried to bully me to change to a new unit or else, I left prior to the end of my contract (honorably-i checked the terms). As a result, I had to pay back some of the bonus on a prorated basis. It’s a contract and fair is fair, right?

My payments were scheduled out over 36-48 months at an interest rate of 1.7%. I cannot be certain, but it is very likely that these personnel are facing the same repayment type.

I feel for the ignorant, but the fraudsters are likely looking at jail time, paying it back is a good deal for them!

I think there may be a ray of hope. I think I read the other day that Ash Carter is suspending the collection process for now, which I think is great. Hopefully once more information is received that they will do the right thing.